Getting to Your “To-Do” List During the Time of Self-Isolation? Check Estate Planning Off Your List.
The COVID-19 quarantine certainly presents many challenges as families hunker-down to stem the pandemic. But silver linings are there to be found. Boredom fosters productivity and the proverbial “to-do” list is one benefactor of the times.
_x_ Home cooking and family meals
_x_ Cleaning out the garage
_x_ Organizing closets and that pesky “everything” drawer
_x_ Tackling the stack of books on the night table or tablet
For many families, estate and wealth planning sits somewhere (way-down) on the to-do list, most likely under the category of “best intentions.” The circumstances of these times, however, should be prompting prioritization of whether your personal and financial planning is in order. While we all instinctively appreciate that putting our affairs in order is an important legacy for ourselves and our intended heirs, beginning the process always seems daunting. Now is an opportune time to move it up the list.
The following are some important considerations to contemplate:
- Do you have an up-to-date Power of Attorney/Health Care Proxy and Living Will to address a health crisis or long-term incapacitation?
- Do you have a Will or Revocable/Living Trust that makes provisions for your spouse and/or children in the event of your death? Provisions would include legal guardianship and trust provisions for underage children and an organized plan for the distribution of your assets.
- When was the last time you reviewed insurance policy, IRA, pension funds and account Beneficiary Designations to ensure those assets are designated to intended beneficiaries? This is particularly important because those specific designations override bequests and provisions under a Will.
- Consider establishing a Life Insurance Trust to capture and marshal insurance proceeds in a structured manner for named beneficiaries over a pre-determined period of time with the additional benefits of liquidity, creditor protection and estate tax savings.
Wealth Transfer Considerations in a Time of Lower Valuations
Beyond the core documents, market adjustments that have occurred in response to the pandemic over the last two weeks, makes this an optimal time to revisit wealth transfer planning. Gifting and specialized trust vehicles remove assets from your estate at depressed valuations, thereby shielding future appreciation from estate taxes upon death. This, together with the benefit of historically high gift and estate tax exemptions, options for wealth planning and transfer include:
- Maximized Annual Gift Exclusions. The $15,000 annual tax-free exclusion can be used to transfer marketable securities where today’s lower valuations can provide extra mileage on gifts without impacting the lifetime gift exclusion.
- Establishing Inter Vivos Irrevocable Trusts for children and grandchildren to hold annual exclusion gifts, as well as larger gifts of currently depreciated securities utilizing the expanded lifetime gift exemption.
- Spousal Limited Access Trusts “SLATs” can accomplish the same goals as the inter vivos trusts with the added benefit of including a “spouse“ as a direct, discretionary beneficiary of trust income or principal.
- Grantor Retained Annuity Trusts “GRATs”. The convergence of low interest rates and lower market values make this a good time to consider wealth transfer with GRATs. The Grantor transfers assets into an irrevocable trust which yields a return higher than the applicable interest rate, while retaining the right to an annuity for a set period of years (or the life of the Grantor). When the period ends, the assets are outside the Grantor’s estate and the remainder beneficiaries receive the assets in the Trust, including all the appreciation, free of estate tax. This technique can be structured so that the transfer has no gift tax impact or a nominal one.
- Make Roth IRA roll-overs. Roth IRAs are those which are funded with after-tax dollars, but which incur no tax distributions at retirement age. Because the cost of converting a traditional IRA into a Roth one is based upon the current value of the IRA, the depressed values of IRA assets makes this a good time to consider and undertake conversions. Roth IRAs are good retirement tax planning, assuming tax rates stay the same or increase over time.
Check Estate Planning Off Your List
It is worth noting that in this new frontier of the remote work environment, provisions have been promulgated, on an emergency basis. These provisions facilitate the process of preparing and executing core and advance personal and planning documents, for those wishing to do so. To that extent:
- Pursuant to an executive order, Governor Cuomo has provided for remote notarization through April 18, 2020, which can be utilized when executing Trust documents and Powers of Attorney; and
- Persons can still execute their Wills in front of two witnesses (with proper social distancing) that conforms to requirements of the Estates, Powers and Trusts Law (“EPTL”), either with or without the virtual presence of an attorney.
In these trying times, step away from organizing closets and the garage and take some time to think about whether your personal and financial affairs are in order. As we are learning in this crisis, matters pertaining to our health and well-being are not always within our control. Preparedness is the best defense against unpredictability. From a planning point of view, we stand at a crossroads of historically high estate and gift exemptions and volatile market conditions where wealth transfers can be maximized by a myriad of planning options. No time is better than now.
Go ahead, check it off your to-do list. You and your family will be all the better for it. Our team at THSH is here to assist you with any questions and concerns relating to your estate planning objectives.
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